Smoking Out Opportunities at Tobacco Plus Expo

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Smoking Out Opportunities at Tobacco Plus Expo

By Mehgan Belanger - 03/08/2010

LAS VEGAS -- Nearly a year after Congress passed and the president signed a historic increase in the federal excise tax (FET) on tobacco to fund an expansion of children's healthcare benefits, convenience store and tobacco outlet retailers joined here at the Tobacco Plus Expo from March 3-4, to discover the opportunities in the category, learn the latest trends, see new products and more.

Ahead of the conference, Convenience Store News held its annual Tobacco Roundtable March 2, where a panel of retailers and manufacturers met to discuss best practices in the category, as well as hear the latest tobacco retailing data presented by CSNews.

One retailer at the event noted the past year was spent "adapting to trends." One of which included bringing in loose pipe tobacco into stores as a lower-cost alternative to roll-your-own (RYO) cigarette tobacco, which was subject of a 1,200 percent tax hike under the FET increase.

Similarly, retailers agreed that last year's predictions that RYO tobacco would die as a result of the FET increase were false. One attendee said the segment "suffered the worst" due to the combined effects of the FET and lower-priced pipe tobacco entering the arena, but the "value of RYO is sill there. … [New] consumers will enter this category and not know anything about last year and the increases in price."

The success of two- and three-count foil packs of cigars was also noted at the roundtable. Another winning product in the other tobacco products (OTP) category is moist snuff, which is seeing high single-digit growth, according to one roundtable attendee.

Another opportunity for retailers is the increasing incidence of tobacco users overlapping segments, such as cigarette smokers using moist snuff or cigars. "Customers buying OTP are smokers. That will get bigger and overlap, and OTP will become more important as retailers realize that," said one roundtable manufacturer attendee.

And on the legislative front, one large c-store chain noted its positive efforts fighting state taxation issues. The retailer said being active in legislative matters "never has been a focus" for the company, but recent success with in-store petitions is making a case for more involvement.

There were discussions at the roundtable, however, on the challenges in the tobacco category. Most attendees at the roundtable voiced concerns over restrictive contracts by the major cigarette companies that make it harder for retailers to take advantage of all the promotional incentives available.

"Contracts hinder us," said one retail chain attendee. "Contracts that reward for margins are restrictive. And out-of-stock [automated] ordering is so tight and close-managed that it leaves no room for error."

"It's more important now more than ever to be a student of the category," said one supplier at the roundtable. "It is more important to manage the category and space allocations between cigarettes and OTP."

Attendees at the roundtable included representatives from such retailers as 7-Eleven, Smoker Friendly and TravelCenters of America. For more on the roundtable, watch for the April 12 issue of CSNews. The roundtable was sponsored by McLane Co. Inc. and Republic Tobacco.

Meanwhile, the Tobacco Plus Expo focused on targeting untapped opportunities in a session called "El Elefante in Your Isles," which was presented by Juan Tornoe, consultant at Hispanic Trending.

"Everyone is aware of the growth of the Latino market. But oftentimes, businesses think they are doing OK, so they don't go after Latinos," he told attendees.

Contrasting the Hispanic growth in the U.S. to the European immigrants of the 1800s, Tornoe said: "many expected the Hispanic market to become part of the big melting pot [of the U.S.] but the Hispanic community has stayed [separate]."

This is due in part to continued Hispanic immigration into the U.S., along with a higher birth rate among Hispanic women compared to other U.S. women. By July 2050, 30 percent of the U.S. population will be Hispanic, equating to one of every three customers, he said.

Other reasons for the lack of assimilation is current technology allows Latinos to stay connected to families in their home countries, and as a result, keeping them connected with their culture.

Tornoe said retailers should create marketing messages that cater to the Hispanic customers' demographics in their region. Factors that influence messages include:

-- Country of origin/heritage-- Language of preference-- Place of residence-- Generation-- Socio-cultural level-- Assimilation/Acculturation level

"By combining these factors, you will be able to tell how to talk to a group of people and how to reach out to them," he said.

And to connect with Latinos, retailers have to understand their culture and societal norms, some of which are:

-- A high degree of intimacy -- Less personal space-- A respect for power and authority-- High importance of families in the decision-making process-- Bigger families and later instances of "empty nests"-- A desire to keep traditions-- A desire for social harmony-- Social flexibility between Hispanic backgrounds and U.S. environments-- Respect for women-- A higher importance on food-- Trends toward retro-acculturation, where heritage is being adopted to pass onto the next generation.

At the least, Tornoe stressed retailers should adopt bi-lingual signage, ensuring that the translations are grammatically and contextually accurate.

Another way to catch Latinos' attention is to use Hispanic cultural elements in general market messages, such as inserting a phrase in Spanish or Latin music. "Don't overtly appeal to both cultures. One should be more subtle and complement the other," he said.

He concluded: "Reach out to Latinos and face them headfirst."

Meanwhile, the show floor of the Tobacco Plus Expo had an unexpectedly upbeat buzz compared to last year when retailers, wholesalers and manufacturers were anxious about the new federal excise tax and what impact it would have on their business. This year, retailers, wholesalers and distributors filled the Las Vegas Convention Center hall to view the latest new products from vendors and manufacturers spanning cigarettes, smokeless tobacco, cigars and more.